Break-even calculator

Break-even is the point where the money coming in exactly covers the money going out. Below it every sale is subsidised by your bank balance. Above it, each additional sale contributes to profit. It is the single most useful number for deciding whether a pricing change, a hire, or a new channel is affordable.

The formula

Break-even units = fixed costs ÷ (price per unit − variable cost per unit). The denominator is your contribution margin: what one sale contributes toward covering fixed costs once you have paid to deliver it.

Fixed costs versus variable costs

Fixed costs do not move with volume in the period you are looking at: rent, salaries, insurance, most software. Variable costs move with each unit: payment processing, cloud usage tied to customers, materials, shipping, per-seat licences you resell.

Cloud is the one people get wrong. A baseline cluster you run whether or not anyone signs up is fixed; the usage that scales with active customers is variable. Split it rather than dumping the whole bill in one column.

What to do with the answer

A break-even number is only useful next to something. Compare it to your actual monthly volume. If break-even is 600 units and you sell 400, you know the size of the gap and can price the three ways out of it: sell 200 more, raise the price, or cut fixed costs.

• Raising price moves break-even fastest, because it widens the margin on every unit at once.
• Cutting variable cost has the same effect per unit and is usually slower to land.
• Cutting fixed costs lowers the bar directly, and is the only lever that works when margin is already thin.

If you want the same maths run against your real ledger rather than estimates, that is the sort of thing our fractional CFO service does monthly.

Frequently asked questions